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  • #61
  • Oct 12, 2012 6:57pm Oct 12, 2012 6:57pm
1. One or two trades per day = 300 trades per year
2. Risk per trade = 1/2 %
3. Reward per trade = 1/2% plus spread
4. Winners = 180 (60%)
5. Losers = 120 (40%)
6. Return per year = 0.5% x (180-120)

Answer = 30% per year, lets say 15% to 30%.

Should we close this thread now?
The Thief of Wall Street
  • #62
  • Edited Oct 13, 2012 3:18am Oct 12, 2012 9:25pm | Edited Oct 13, 2012 3:18am
Quoting Chicky
1. One or two trades per day = 300 trades per year
2. Risk per trade = 1/2 %
3. Reward per trade = 1/2% plus spread
4. Winners = 180 (60%)
5. Losers = 120 (40%)
Chicky,

a) How about factoring in some compounding?

300 trades per year = ~6 trades per week.
At 60% win rate, that's averaging 3.6 wins and 2.4 losses per week.
Hence average net gain per week = (3.6 - 2.4) x 0.5% = 0.6% gain per week.
Gain per year = 1.006 ^ 50 = 1.3486, i.e. ~35% p.a. (not much above the 30% figure that you mentioned)

b) Increasing risk per trade

What happens if we risk 1% per trade (instead of 0.5%)?
Gain per week = 1.2%
Gain per year = 1.012 ^ 50 = 1.8156, i.e. ~82% p.a.

What happens if we risk 2% per trade?
Gain per week = 2.4%
Gain per year = 1.024 ^ 50 = 3.2734, i.e. ~227% p.a.

i.e. Same entries, same exits, same number of trades, same profit factor. Return soars from 35%, by ~6.5 times, to 227%, by increasing the pos size fourfold.

Conclusions:
i) The effect of compounding is magnified significantly, if we can justify taking larger position sizes.
ii) How should we determine the correct size, i.e. balance the maximizing of return against the risk of unacceptable drawdown? This illustrates the importance of defining "unacceptable", and using it to first create a suitable risk model.

c) Increasing trading frequency

Now finally, what happens if we can find double the number of opportunities, i.e. 12 trades per week, instead of 6.

At 60% win rate, and 2% risk per trade, that's (7.2 - 4.8) x 2% = 4.8% gain per week.
Return per year = 1.048 ^ 50 = 10.4247, now we have ~942% p.a.

Again: same entries, same exits, same profit factor — that's assuming we can find opportunities elsewhere (another pair?), to double our trading frequency, without compromising the profit factor. This idea can be further extended to include concurrent uncorrelated positions.

d) Increasing compounding frequency

In the above examples, we were compounding every week. If we were to compound by simply risking 2% of the current account balance per trade, this would also make a difference. I'll leave it to readers to do the math.


All of the above may, or may not, be realistically achievable. There's obviously a huge difference between 30% and 900% annual return. All I'm trying to say is that the biggest factors in determining annual return are not necessarily win rate, or payoff ratio (avg RR) — the product of which is profit factor, and is determined by the efficacy of entries and exits — but:

 

  1. risk% per trade
  2. trading frequency (number of opportunities)
  3. compounding frequency

Something for all of us to think about.

That's a big reason why I think these "How much is it possible to make?" threads are essentially meaningless. As we've seen, we can increase return by something of the order of 30 times (30% to 900%) merely by tinkering theoretically with system-independent variables. Nobody ever seems to discuss the importance of a risk model, or at least defining return as a factor of what can be safely and acceptably risked, given the vagaries of worst case statistical fluctuation...... and yet position size has perhaps the biggest bearing on return, of them all.

We've been discussing % return here, and that's all good, but ultimately if one is to make a living out of trading, adequate capitalization is also imperative. If trading is one's sole form of income, then consistency of income may be preferable to maximization of income, in order to pay the regular stream of household bills. (One way of smoothing one's trading income is to scale into and out of trades, using multiple positions; another is diversification — running multiple strategies, or the same strategy on different pairs/timeframes, if appropriate).

And finally, trading ultimately comes down to implementation — the ability to execute consistently and flawlessly. Due to the number of complex variables — mathematical, methodological and personal — what one trader might be able to make has absolutely no bearing on what another will make. No apples-to-apples comparison is sensibly possible.

What is theoretically achievable? Look at the net wealth of the likes of John Paulson, Jim Simons, Steve Cohen, Bruce Kovner, Paul Tudor Jones. Sure, they operate big hedge funds, but each of them had to start somewhere.

But what is the 'average' trader realistically likely to make? The statistics tell us that he's 10-20 times more likely to quit before he ever reaches consistent profitability.

David

  • #63
  • Oct 13, 2012 8:42am Oct 13, 2012 8:42am
Quoting hanover
Chicky,

a) How about factoring in some compounding?

300 trades per year = ~6 trades per week.
At 60% win rate, that's averaging 3.6 wins and 2.4 losses per week.
Hence average net gain per week = (3.6 - 2.4) x 0.5% = 0.6% gain per week.
Gain per year = 1.006 ^ 50 = 1.3486, i.e. ~35% p.a. (not much above the 30% figure that you mentioned)

b) Increasing risk per trade

What happens if we risk 1% per trade (instead of 0.5%)?
Gain per week = 1.2%
Gain per year = 1.012 ^ 50 = 1.8156, i.e. ~82% p.a.

What happens if...
A very insightful post. Thanks David.

Let me share a relevant experiment I did two years ago.

A gentleman in New York showed me his stock portfolio that gained 20% in a year or so. Coming from a Jewish background, he thought he had the gene of growing that to crazy limits.

I showed him somewhat similar to your calculations on compounding. He was so excited with these kind of returns that he offered $200,000 to start with. I agreed to accepting only $200 for this experiment and put equal amount. Based on 1% profit per day, we estimated that this account of $400 had compounding potential of $54m or so in the next 5 years. In about 90 days, we managed to grow the account by 98%, little more than the target risking 1% per trade and two to four trades a day. Our profit/loss increased from $4 per trade to $8 per trade. But this was so boring that we decided to go for bigger risk of 10% per trade. This is where we started losing. When this account balance decreased to less than $3, I bought his 50% share for little more than a dollar and continued with $3. When $3 went to $5 or so, I added $400 to this account and took it to $940 or so. But again, in a bid to multiply $940 to $9,400 I lost. This account is currently at $30 and I intend to take it to $1,200 as a next step.

What did I learn from this experiment:

Once you have a solid edge:

1. Never place a time or number of trade limit on your trading. That means, never have a daily, weekly or yearly growth target. It depends on how market moves and when it moves. In other words there is no such thing as "How Much Do People Make Trading Forex". Like the excellent words you wrote in your post "what one trader might be able to make has absolutely no bearing on what another will make. No apples-to-apples comparison is sensibly possible".

2. Since your edge is logically correct, all you have to do is consistantly apply this edge. Like you mentioned "trading ultimately comes down to implementation — the ability to execute consistently and flawlessly".

3. I am not happy when my account significantly grows in a day or two like I am not happy if it depletes in a day or two. It does not make me happy to double an account in day or two. Why? this is not I want because it indicates high risk. What I want is consistency, small gains and small losses but more gains and less number of losses. That means you are again right in saying "the ability to execute consistently and flawlessly"

Will I be able to take this $30 to $54m? I don't know, but what I know is that it will consistently grow. The only thing I am not going to do is to increase my risk from 1% per trade. I can increase my r/r but not the risk.
The Thief of Wall Street
  • #64
  • Oct 13, 2012 12:50pm Oct 13, 2012 12:50pm
Quoting jcdollar
I was wondering because i here people talking about how many pips they brought in 15, 50, 165. I know what a pip is and it comes down to their levarage i.e. 50:1, 200:1 and lot size they trade standarad lot (Lot 1) e.t.c

Im trading with a demo account 50:1 leverage with standard lot 1 and I started with 3,000$

This most this has ever made me wat 392$ which was around 39.8 pips!

Would it be possible to make around 1200$ a week trading forex, taking only 40% of what you make a week for yourself, then putting 60% back into the account to grow...
Nothing is impossible in forex trading. You can make $1200 profit from $3000 in a week, which is 40% profit in a week if your luck, analysis and market favor you. If you trade with standard lot than you have to make 120 pips profit (total pip gain - total pip losses) in a week which is tough but possible if you are a good trader.
  • #65
  • Oct 13, 2012 1:49pm Oct 13, 2012 1:49pm
Quoting shanewatson
Nothing is impossible in forex trading. You can make $1200 profit from $3000 in a week, which is 40% profit in a week if your luck, analysis and market favor you. If you trade with standard lot than you have to make 120 pips profit (total pip gain - total pip losses) in a week which is tough but possible if you are a good trader.
The other side of the story is that you can also loss $1500 or all.
Fear prevent possibilities, and so does Greed
  • #66
  • Oct 13, 2012 6:13pm Oct 13, 2012 6:13pm
Quoting Chicky
A very insightful post. Thanks David.

Let me share a relevant experiment I did two years ago. ......
Chicky,

Agree with you 100% about not setting targets. Trying to achieve targets can cause the trader to overtrade, or overleverage himself, if he starts falling behind the clock. It's all too easy to end up trading one's account balance, instead of the setups and probabilities being offered by the market. I guess that's stating the obvious.

The only reason I quoted the figures that I did was to give some hypothetical examples of the huge effects that increasing pos size, and frequency of trading/compounding, can potentially have on account growth. Of course risk management must remain the #1 priority of the prudent trader, and the key is somehow finding an acceptable balance between maximal return, managing drawdown, and smoothness of income. Assuming there's no holy grail, then there are going to be losing sequences, even with a solid edge.

There are also no absolute guarantees that a methodology which works profitably today will continue to grind out similar ROE in the future. But IMO traders must be willing to embrace that kind of uncertainty, as a potential hazard of the entrepreneurial nature of the job. Keeping risk below 1% (as you suggest) will give you more time to re-evaluate the efficacy of your edge, should you ever need to determine whether your methodology remains valid, during a losing sequence. So yes, I definitely agree with you in term of erring on the side of conservative MM.

Also agree with you when you say that there is no such thing as "How Much Do People Make Trading Forex", for all the reasons that we've both given. Like you say, you have what you are confident is a robust edge, you size conservatively enough to withstand what you believe is a worst case scenario, and you implement as consistently and accurately as you can. Profit is not something to be targeted, it is merely a by-product of getting all of this correct.

I wish you massive success with your project.

Good luck,
David
  • #67
  • Oct 13, 2012 6:59pm Oct 13, 2012 6:59pm
Quoting hanover
Chicky,

Agree with you 100% about not setting targets. Trying to achieve targets can cause the trader to overtrade, or overleverage himself, if he starts falling behind the clock. It's all too easy to end up trading one's account balance, instead of the setups and probabilities being offered by the market. I guess that's stating the obvious.

The only reason I quoted the figures that I did was to give some hypothetical examples of the huge effects that increasing pos size, and frequency of trading/compounding, can potentially have on account...
David,

Oooooooooooooooops! I just noticed that you are "hanover" and a commercial member. One thing I should share with all is that whenever I see a post by "hanover" it is always a quality post.

Thanks for the good wishes. I think it is time for me to prove something.
The Thief of Wall Street
  • #68
  • Oct 13, 2012 7:50pm Oct 13, 2012 7:50pm
How much do people make trading FOREX


?????


you mean

how much people LOSE trading forex?
  • #69
  • Oct 14, 2012 1:06am Oct 14, 2012 1:06am
Quoting Hakimi
How much do people make trading FOREX


?????


you mean

how much people LOSE trading forex?
Let's restate the question.

How much do people lose trading (forex, futures, stocks ... and all)

I wager that the amount lost is equal to the market value of the financial industry world-wide. Adding up the value of the buildings alone. We are already in the billions.
  • #70
  • Nov 1, 2012 12:24pm Nov 1, 2012 12:24pm
Quoting Chicky
With $240,000 - Quite possible if you are a very good trader

With $3,000 - No.
Are you mad??? A good forex trader can make anywhere between 5% to 15% per month consistantly. And yes, I understand compound interest and yes, I've done the maths...

So what? You want to be a money machine? Get 90% accuracy and RR of 2 and you can start your own central bank.

And yes, I know, as the account gets bigger, the % will decrease so if you happen to have 1 million Dollars, 3 - 8 % should be fine ;-)

It's easy, you risk 1% per trade, make 2% per trade, make 20 trades per month with 90% accuracy... What do you get? 16%...

Don't be fooled, the guys that are really good are REALLY COINING IT.

So stop asking and start training!
@pawpaw1000 on Twitter
  • #71
  • Nov 1, 2012 12:52pm Nov 1, 2012 12:52pm
Quoting pawpaw1000
Are you mad??? A good forex trader can make anywhere between 5% to 15% per month consistantly. And yes, I understand compound interest and yes, I've done the maths...

So what? You want to be a money machine? Get 90% accuracy and RR of 2 and you can start your own central bank.

And yes, I know, as the account gets bigger, the % will decrease so if you happen to have 1 million Dollars, 3 - 8 % should be fine ;-)

It's easy, you risk 1% per trade, make 2% per trade, make 20 trades per month with 90% accuracy... What do you get? 16%...

Don't...
Wait a minute dude!

Are you trying to tell us all here that it is possible to make $1,200 a WEEK on $3,000?

Are your from Mars or Pluto?

Please tell us it was a joke.
The Thief of Wall Street
  • #72
  • Nov 1, 2012 2:35pm Nov 1, 2012 2:35pm
Quoting pawpaw1000
Are you mad??? A good forex trader can make anywhere between 5% to 15% per month consistantly. And yes, I understand compound interest and yes, I've done the maths...


It's easy, you risk 1% per trade, make 2% per trade, make 20 trades per month with 90% accuracy... What do you get? 16%...
does't add up.
.
  • #73
  • Nov 1, 2012 3:54pm Nov 1, 2012 3:54pm
I was playing around with this very small account between Jun to October. The account was very small and i traded very aggressively on it. Risking from 5% to 40% at times. I took around 880 trades in 4 months.

You can see the equity curve in attachments. The account was blown in the end but i did withdraw 3 times in that period so even after blowing the account i am up 30%.

but that's not the point.

I applied some "sane" rules to all of those 880 trades and for the last 2 weeks i am going back in charts and applying the rules on each and every trade.

Here are the rules.

1. No more than 2% risk on a single trade.

2. Only one trade in the same direction on one pair. One more trade can be entered if in opposite direction.

3. Can execute a second trade only when price is > 30 pips away from the first entry and half is off and stop is moved to BE.

4. Trade management style 1) All out at first cluster of stops or SR

5. Trade management style 2) Half out at 1st cluster of stops or SR, Secong half out at 2nd cluster of stops OR SR OR PIPs made on 1st half x 2 (whichever comes first)

6. Trade management style for Long Term trades) Half out at 1st cluster of stops or SR, 2nd half trailed behind PV's OR if price distance is > 100 pips (depending on vol of different pairs) behind 50% fib)

7. Stop loss should be atleast 40 pips, if falles within 10 pips of a 50/00 RN than should be moved further above/below the RN 5 pips + spread and same goes if near an SR.

Now i am only done until the end of August (think gonna take 2-3 more days complete the whole history) but this is what i am at right now.

1. Number of trades have been trimmed due to the rules, from 550 to 204,

2. E-curve is really smooth (not including withdrawals keep in mind).

3. The highest %return was 112% on 20-August on Trade management style 1 and 132% on trade management style 2 also on 20-August.

4. The current %return is 82% and 103% respectively.

5. The win ratio has gone up from 37% to 67%.

6. Profit Factor gas gone up from 1.58 to 3.5.

7. Averge stop on 204 trades is 43 pips and average TP is 37 pips (on 1st trade managment (TM) style, dont have the will to calculate for 2nd TM style @ 3-49 AM)

8- Drawdown? whats a drawdown?

I tried my very best to not to be biased in any way, at times when a trade was on the edge of a loss or a winner just begging to mend the rules and putting me in doubt i took the loss straight away. I also subtracted the spreads after calculating the final TP.

What does this proves?

For all of you out there....Nothing.

I am a very discretionary trader so there is no "system" that every one can test and trade like me or anything. We can also dont know if i would follow those rules in the real live world like i did in that excel sheet.

But to me its a gold mine really, its just shouting at me that if i follow the simple rules written above rigidly i could do really well on a decent sized account. Anyone would tell you to have/find some basic MM rules for yourself and follow them and you will be fine. But i have the rules and i almost have the proof that they would work amazingly if i follow them. Now 4 months is not big amount of time period but we have been through all kind of market conditions in this time and 880 trades is a good sample size.

I have not completed the whole thing but it will be finished soon. Hope the E-curve stays smooth as it is but i dont think its possible as i had big chunks of losses in a row in end.

All i have to say in the end is do your home work, no one will do it for ya and you certainly cant copy others.

.
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  • #74
  • Nov 2, 2012 4:42am Nov 2, 2012 4:42am
Quoting jcdollar
I was wondering because i here people talking about how many pips they brought in 15, 50, 165. I know what a pip is and it comes down to their levarage i.e. 50:1, 200:1 and lot size they trade standarad lot (Lot 1) e.t.c

Im trading with a demo account 50:1 leverage with standard lot 1 and I started with 3,000$

This most this has ever made me wat 392$ which was around 39.8 pips!

Would it be possible to make around 1200$ a week trading forex, taking only 40% of what you make a week for yourself, then putting 60% back into the account to grow...
I think higher the risk you take, higher the chance to burst or accumulate the account, so always stay save and move with low risk and lot sizes.
  • #75
  • Nov 2, 2012 6:43am Nov 2, 2012 6:43am
Quoting Mr Euro
I think higher the risk you take, higher the chance to burst or accumulate the account, so always stay save and move with low risk and lot sizes.
The best advice, and with perfect logic
The Thief of Wall Street
  • #76
  • Jan 6, 2013 5:15pm Jan 6, 2013 5:15pm
I also think that asking "how rich do people get?" and similar questions is stupid to ask. it hypes people up, they think 'WOW I can be rich too!!' this puts their risk up and they lose money. Don't know if anyone's noticed, but you don't see but i need to fine out how it works
  • #77
  • Jan 6, 2013 8:57pm Jan 6, 2013 8:57pm
Granted that thinking about the $ everytime you trade is idiotic..and newbies tend to go with their initial assumption "wow, it looks easy to make money in forex"..which is why so many lose their initial deposit within days of setting up an account.
  • #78
  • Jan 9, 2013 6:58pm Jan 9, 2013 6:58pm
Quote
How much do people make trading FOREX


not much, in short

reading some data collated by an academic, preliminary findings are that just 0.4% of retail traders will have more than 4 back-to-back profitable quarters (yes, you read that right, less than 1%); much lower than the often touted 5%

does that mean you cant be a 0.4%? no, you can, but a retailer would be better off going pro, (Trading Hse, Bank etc.)
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  • #79
  • Jan 10, 2013 4:20am Jan 10, 2013 4:20am
I was just wondering how much the average full-time forex trader makes. You can express this amount either as a percent return on their investment, or a dollar amount. I realize that there is likely swings in their return, but I just mean on average over the course of the year.

What kind of initial deposit is required to successfully trade full-time and make a decent living at it?

Finally, is there a large difference in return between day-traders and swing-traders?

The reason I ask is because I will be done college at the end of this month, and I would really prefer to trade forex full-time rather than get a regular office job if it is at all feasible. I've been trading forex in a demo account for over 2 months now and I've had relatively good results. I started with a $10,000 balance and some days I can be up $1,000 or more... of course I got a margin call and went broke once, but I've learned from my mistakes. I plan on spending at least the summer honing my forex skills, but I was hoping I could make this a viable alternative to the average mind-numbing desk job some day.

aajtak




  • #80
  • Jan 10, 2013 5:22am Jan 10, 2013 5:22am
Quoting nimal
I was just wondering how much the average full-time forex trader makes. You can express this amount either as a percent return on their investment, or a dollar amount. I realize that there is likely swings in their return, but I just mean on average over the course of the year.

What kind of initial deposit is required to successfully trade full-time and make a decent living at it?

Finally, is there a large difference in return between day-traders and swing-traders?

The reason I ask is because I will be done college at the end of this month,...
Who knows what the average full time trader makes?
What you have to realise is that a lot of people who post on forums lie.
You've been trading on demo and sometimes earn 10% in one day.
You are risking too much, that's why you have blown your account. Just thank God that it was only demo.
Continue trading on demo until you are able to make profit every month with an acceptable drawdown. Blowing your account is not acceptable.
Once you are confident with your method, open a small real trading account. When a trade goes $10 into loss try to think how you would feel if that $10 loss was 10 times bigger. Would you be able to cope with that?
Start from a real account with small money, then the losses won't affect you too much.
If you opened a real account with $10,000 and lost it all, how would you feel?

Take it slowly, baby steps
Please Do Not PM Me With Coding Enquiries
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